Perhaps I will leave it to my hon. Friend eloquently to make the partisan case, while I focus on the rest of my speech.
The Queen's Speech has highlighted another sharp difference between the Government and the Opposition: the Government are committed to spending money on those who need it most. This crisis has a social dimension, and we have to be alert to that. It is the most vulnerable groups in society who could lose out as a result of it. I welcome the Government's investment in protecting people's jobs and in ensuring that there is work or training for the 1.2 million young people who will leave education this year and next. When the general election comes, issues such as the role of the state will play quite a part.
Today, however, I want to focus on lending. A large part of the correspondence that I have received over the past year has focused on that matter. When the Governor of the Bank of England came before the Committee almost a year ago, he told us that lending was the biggest issue facing the economy, and it still is. According to Bank of England statistics, UK banks are still contracting their lending. This is particularly difficult for small businesses, which rely on the banks. The newest member of the Monetary Policy Committee, Adam Posen, recently said:
"I am concerned because the financial system in the UK does not seem to have a spare tyre for the provision of capital to non-financial businesses when the banking system has popped a leak."
He added that there must be channels for non-financial companies, particularly SMEs-small and medium-sized enterprises-to get capital. Without that, there would be little scope for a private sector recovery. Without a return to lending, the recovery will be inhibited. Here, again, there is a need for the state to intervene. The Government-indeed, Governments globally-are the only show in town. Without Government intervention, to whom would we resort for that lending? Forty per cent. of the lending in the UK, which used to be provided by overseas banks, has now disappeared.
I have called on the Government to establish a public sector bank-for example, via the Post Office-which would be able to lend to creditworthy businesses and individuals when the private sector was unable or unwilling to do so. I welcome the Prime Minister's initiative on banking via the Post Office, but there is still a need for direct lending to individuals and businesses by the state. In that respect, I have an ally in Jim O'Neill of Goldman Sachs, who has made the very same point. There is a need for this provision, because good SMEs could go out of business as a result of the crisis, and we cannot afford that to happen.
Turning to remuneration and City bonuses, I welcome the Government's commitment to reforming the bonus culture. However, the issue at the heart of this matter is not just the bonuses but the incentive structures in the City. It is the incentive structures that we have to get right, because we have seen the situation being skewed by short-term rewards, while the long-term interests of companies have been neglected.
When the Governor of the Bank of England came before our Committee, he told us that the remuneration structures in the City of London encouraged people, in his words, "to gamble". He said:
"It was a form of compensation which rewarded gamblers if they won the gamble but there was no loss if you lost it. It is obvious that if you do that you will give incentives to people to gamble."
This is not about the politics of envy, but about the implications for financial stability of bonus payments that reward excessive risk taking. It is also about how much money should flow to employees when the financial system is effectively supported by public funding and owners have lost money.
Capital has to be rebuilt. Some try to deny that bonuses played any role, but Joseph Stiglitz, the Nobel prize-winning economist, argued that bonuses played a major role in encouraging reckless behaviour. Even bankers such as John Varley of Barclays and Andy Hornby of HBOS, when they came before the Treasury Committee, said that bonuses had been a contributory factor to the crisis.
This is why there is a strong case for granting the Financial Services Authority new powers and legal rights to "tear up" up employment contracts for bankers if the terms of those contracts encourage excessive risk taking or include multi-year guarantees. Such a power would be no more stringent than, for example, the power of the courts to declare a contract unenforceable if it breaks the rules, or indeed the Competition Commission's power forcibly to split up monopolies.
What we are witnessing at the moment is the possibility of a return to business as usual in the banking sector. We must prevent that return to business as usual. At the moment, policy makers worldwide are busy proposing reforms to make the financial system more resilient. The banking sector today has largely accepted, although not welcomed, the idea that change is coming and the regulatory environment will become tougher. Yet we are already seeing banks challenging that state of affairs.
One message that I have for the banking community-I have been in the City and spoken about this-is that the banks must put their heads above the parapet and discuss the issues now. Whether it be in television or radio programmes or other media appearances, we do not see many chief executives. They are hiding, and the danger that arises from that is that we will end up with inappropriate legislation as a result. If we want to change the system, we must have a vigorous debate in which those chief executives become involved. We have already heard some comments. For example, at an FSA seminar last week, Joseph Ackermann of Deutsche bank was saying, "Don't interfere. Keep the banks as they are." That is a danger. What I would say to chief executives and the banking community is that they should not just put money into public relations and promote their image; they should get on the same platform as the rest of us and debate that issue.
Copy and paste this code on your website